Pantera Partners: What is driving Ethereum to new highs?
After further progress in network scalability and applications built on Ethereum, it is expected that more institutional investors will begin to pay attention to ETH, which may continue to drive prices to new historical highs in late 2021.This article is from Pantera Capital, authored by Paul Veadittakit, and translated by Lu Jiangfei.
As the second-largest cryptocurrency by market capitalization, Ethereum (ETH) recently reached an all-time high price of $1,439. How should we view this event?
The reason Bitcoin holds a significant position in the cryptocurrency industry is mainly due to its "digital gold" narrative, while Ethereum is currently the preferred platform/blockchain for smart contracts and decentralized applications. If Bitcoin is gold, then Ethereum is silver. If Bitcoin is the most worthwhile cryptocurrency to invest in, then Ethereum is certainly in second place.
In the current environment, we have seen institutional capital, companies, and wealth management platforms begin to purchase Bitcoin, resulting in some retail investors also starting to follow suit in investing in cryptocurrencies. However, while institutional capital has been diligently educating and promoting Bitcoin, those who have profited have begun to turn to Ethereum, including some smart contract platforms and token projects that build decentralized applications.
So, what makes Ethereum so attractive now?
Scalability
On December 1, 2020, Ethereum launched the Beacon Chain, officially starting the first phase of its upgrade to Ethereum 2.0. Ethereum 2.0 is expected to bring scalability and a proof-of-stake consensus system, allowing users to vote with the value of their held tokens/currencies to secure the network. So far, 2 million ETH tokens have been staked.
In addition, many layer two scaling technologies/solutions have emerged in the market, with the core idea aimed at keeping data on-chain while moving transaction execution off-chain to enhance network performance and accelerate transaction processing speed while ensuring security. You can see an overview of layer two solutions, investor information, and the projects they collaborate with in the image below.
DeFi Growth
DeFi, or decentralized finance, refers to users trading value on the blockchain in a P2P trustless manner. At the beginning of 2020, the total locked value in DeFi protocols was around $1 billion, but it has recently skyrocketed to $24 billion, meaning it has grown 24 times over the past year, which is quite astonishing.
Today, decentralized trading volume on platforms like Uniswap, 1inch, Sushiswap, and 0x has reached 16% of the total trading volume of all centralized cryptocurrency exchanges. Stablecoins are cryptocurrencies that have a fixed value in fiat currency (primarily the US dollar) and are used as a store of value or trading asset. As of December 2020, the issuance of stablecoins has reached $24 billion. Decentralized lending protocols like Aave and Compound have also brought innovations in flash loans, liquidity, and governance to the market. Additionally, the total number of DeFi users has shown impressive growth over the past year (as shown in the image below).
Rise of NFTs (Non-Fungible Tokens)
Non-fungible tokens are a type of token that allows artists to sell unique digital artworks. In December 2020, digital artist Beeple sold a series of artworks for a total price of $3.5 million. Recently, Justin Roiland released an art series "Rick and Morty," with one piece selling for $290,000.
As you can see, the trading volume of crypto art is continuously growing, allowing creators to earn additional income, and some emerging artists are starting to enter this field, hoping to gain recognition from it.
Moreover, NFTs are not limited to the digital art space; they can also be applied to gaming and even real-world assets. In the future, when you use blockchain to track the "trivial" ownership of collectibles, it may become even more interesting—imagine a platform owned by the community where every user has decision-making power and better economic benefits. So, I really hope this industry can achieve great success in 2021.
2021 ETH Predictions
After further progress in network scalability and applications built on Ethereum, it is expected that more institutional investors will begin to pay attention to ETH, potentially continuing to drive prices to new all-time highs in late 2021.
